Tag Archives: Fitch

Twenty-Cent Paradigms: Is Euro-geddon Nigh?

UPDATE: Check this article on A fistful of Euros for a very comprehensive overview of the matter of the Cyprus-policy rampage itself and all kinds of political validations. I share the conclusion. New Commission now!


http://twentycentparadigms.blogspot.fi/2013/03/is-euro-geddon-nigh.html There is a lot to say about Cyprus’ deal, and haven’t had time to digest all the aspects of the deal. But as said in this fairly comprehensive article it does not look good, in particular because again the banks are not dealt with although many of the eurocrisis’ issues originate from excesses in banks – German, French, Dutch, Irish, Spanish etc. The fact that banks become zombie banks propped up by ECB loans is apparently not bothering the EU elites. I suppose soon people will just hide money in socks again, to escape the unfair treatment deposit holders get, likely every time from now on. Oh and Moody’s or Fitch warned some time ago, in relation to SNS Reaal that it would reconsider the credit ratings all over Europe in case depositor’s money would be confiscated.

All’s not well in the Eurozone: case the Netherlands

Today Naked Capitalism features a bit by Delusional Economics on the current state of the Eurozone, or to be precise, the widening gap between Germany and the rest of the Eurozone. It is a pity that Finland is not included in Markit’s PMI measurements, because that could be interesting. The piece focuses mostly on France, as it is arguably the most dramatic case at the moment, but the Netherlands also gets a mention:

The other ‘core’ country that I have expressed concern over in the last few months is the Netherlands. On Tuesday Fitch adjusted the country’s outlook to negative (full text here):

Rating agency Fitch cut its outlook on the Netherlands’ AAA credit rating to negative on Tuesday, citing worries about falling house prices, the banking system and the high state debt burden.

The other major rating agencies, Moody’s and Standard & Poor’s, have already put their Netherlands’ ratings on a negative outlook. The country is one of just four in the 17-nation euro zone to have kept a full set of top ratings.

“The leveraged Dutch economy has suffered a number of shocks,” Fitch said in a statement.

It pointed to a sharp fall in house prices which it said was worse than it had previously expected. Fitch recently revised its projected peak-to-trough decline to 25 percent from 18 percent, and said this will continue to depress household spending.

I referred to the article Delusional Economics mentions and recently I have written a few short bits on the nationalization of SNS Reaal and the state of the housing market and indebtedness. It is worth the time to read the reasoning by Fitch on the negative outlook, as it says something which seems a bit of an understatement. Fitch states that the following will influence a decision to consider a downgrade:
– Prolonged economic stagnation and rising unemployment
Although the Dutch labour market is quite flexible and at the moment unemployment is not very high, the issue of economic stagnation is a real threat, given how dependent the Dutch economy is on the economic well-being of other countries. But on the other hand, as this article argues (in Dutch), at the local level there are all kinds of activities to build a sustainable economy. But given that the (until recently) growth of the German economy has not benefited the Dutch economy, it would be good to keep an eye on this little big country.

More news about SNS Reaal – De Volkskrant and Fitch

This article considers the effects of a rescue of SNS Reaal for a group of private investors that bought certain ‘participation certificates’. I am not exactly sure what these are but they are apparently bank obligations with high risk and high interest. They sound to me like the devices the Spanish banks devised to raise capital.

While details of the bank rescue package and its impact on bondholders have yet to be worked out, most analysts are busy speculating that subordinated debt holders will be forced  to contribute to the recapitalisation effort. But as I say any such  ”bail in” would involve subordinated debt holders – and in particular holders of hybrid instruments like preference shares – taking losses. The hierarchy is just like that, you can’t haircut seniors before you have hit “juniors”. These are the banks own customers, who were basically sold the instruments on the understanding that they were “just like deposits” and very low risk. Bank of Spain inspectors warned Minister Pedro Solbes in a letter in 2006 that these very instruments were being sold to finance high risk developer loans, but no action was taken. Far from making irresponsible investors pay this measure would penalise the very people who help keep Spain’s banking system together, those small savers who forwent going for holidays on credit to Cancun, Thailand or Japan, and failed to increase their mortgages in order to buy lavish SUVs in an attempt to save for their retirement. These are the people who now face the prospect of losing  their precious savings to cover the losses generated by those who did both of the above.

And beyond this issue of subordinated debt is a warning from Fitch (via Yahoo News:

A writedown of bonds however would affect the ratings of Western banks, the FD daily quoted ratings agency Fitch as saying on Thursday.

“If an important country in Europe writes down the ordinary bonds of a problematic bank, that means a complete change in how we look at banks,” Bridget Gandy, head of European bank credit ratings at Fitch said.

The Dutch Finance Minister and soon-to-be Eurozone leader Jeroen Dijsselbloem claimed that Fitch made ‘reasoning mistakes’ but as SNS is a current case, could not further explain the issues. In any case, also the Dutch government sees SNS as too-big-to-fail.